Weekly Update 30 October 2016 – LS Trader

Stocks began the week with some strength but fell away as the week progressed. The dollar index reached its highest level since March, but the dollar itself continues to see mixed trading against most of the majors. Interest rate futures could be on the verge of a breakdown and change of trend to down for the first time this year.

Stocks

The Nasdaq 100 rallied to a new high on Tuesday but was unable to press higher as buying volume failed to materialise. A swift reversal followed, taking the market back to the 50-day moving average. The trend remains up, but the increase in volume as the market declined suggests weakness may continue next week.

The S&P 500 remains considerably weaker than the Nasdaq 100 and did not come close to breaking out to new highs. Price remains between its 50 and 200-day moving average. A test of the next level of support at 2100 could be key. If that level is tested and broken, we may see further declines.

The Dax reached a new high for the year on Tuesday but, as with the Nasdaq 100, was unable to push higher. Price fell back to just above the 50-day moving average on Friday, before reversing higher. A strong demand tail was seen on Friday, which has kept the uptrend intact.

Of the four stock indexes that we trade at LS Trader, the Nikkei has been the strongest this week. Price has rallied to its highest level since April, and the RSI has risen further into the bull range. The Nikkei benefits from a weaker Yen, and the Yen has seen weakness this week, having fallen to its lowest level since July.

Commodities

The energy markets retreated this week. Crude fell back below its 200-day MA and closed on the 50-day MA. The trend is still bullish for the energy markets for now, and the RSI remains in the bull range. However, we may see the 40 level tested on Crude’s RSI this week.

Oats completed a fifth consecutive week of rallies to reach its highest level since December. Volatility has become elevated, and there was a huge price rejection on Friday. The trend, however, is now bullish.

Coffee rallied to its highest level since February last year and did so on above average weekly volume. Price may continue higher to test the area of the 200-week moving average, currently at 172.27.

Copper found support at the trend line that we wrote about last week and rallied sharply. Gold and Silver also moved slightly higher for the week, keeping the long-term uptrend intact for now.

Currencies

The dollar has had another mixed week. The dollar index reached its highest level since March but has so far been unable to press higher. The trend remains up for the dollar index.

The British Pound continues to consolidate in a narrow range, just above the key recent lows, as it has for the past few weeks. The long-term trend remains very much down for the Pound.

Interest rate futures

Interest rate futures fell this week and look to be on the verge of a breakout to the downside and a change of long-term trend. The long bond moved decisively below its 200-day moving average this week, and the RSI fell to 31.97, well into the bear range.

The shorter-term markets have held up a bit better. The 5-Year T-Note barely managed to hold support and close above its 200-day MA.

For now, the trend is still up for the sector, but that could change this week.

Good trading

Phil Seaton

LS Trader

Weekly Update 23 October 2016 – LS Trader

The dollar has had a positive week with the dollar index reaching its highest level since February. At the same time, the Euro has fallen to its lowest level since March. The stock markets have continued to consolidate near their recent highs, with the exception of the Nikkei, which completed a change of long-term trend to up this week.

Stocks

The S&P 500 closed the week higher but has effectively just consolidated below its 50-day moving average for the past eight trading days. Price remains between the 50 and 200-day moving averages, and the long-term trend is still up. The RSI, however, remains in the bear range.

The Nasdaq 100 remains stronger than the S&P 500 and is very much within range of a breakout to new highs. Volatility is low, so we can expect an increase in price movement over the next week or so.

The Nikkei, which has been the weakest of the four stock indexes that we trade at LS Trader for quite some time, completed a change of long-term trend to up this week. Volatility was in the pre-breakout phase, and volume supported the breakout. That setup suggests further rally.

The Dax has also moved higher this week and is also within range of a breakout and a resumption of the long-term uptrend.

Commodities

Gold rallied back to test its 200-day moving average after its recent steep decline, and the long-term trend remains up. Silver also moved higher for the week but remains just above a key support level. Copper is at present the most attractive of the metals as it continues to test the lower boundary of the triangle. A downside breakout has bearish potential.

The grains markets continue their recent recovery and are mostly pushing higher, although only Soybean Oil is currently in a long-term uptrend having completed a change of trend to up this week. The rest of the sector remains in a long-term downtrend for now.

Currencies

The dollar index found support at the prior resistance level, which is what we were looking for in last week’s update. As expected, that area provided a platform for a further rally as the index reached its highest level since early February. A test of par over the coming weeks looks likely.

From last week: “Dollar strength has pushed the Euro lower down towards a major trend-defining support level which could be tested this week.” The Euro did fall and tested support as expected, and price easily pushed lower. The one negative is that volatility has reached quite a high level, but the price should continue lower overall.

Interest rate futures

Interest rate futures mean reverted to fair value this week and narrowly remain in a long-term uptrend. The 30-Year T-Bond continues to trade around the 200-day moving average, but has yet to complete a change of trend to down and remains in a long-term uptrend.

Good trading

Phil Seaton

LS Trader

Weekly Update 16 October 2016 – LS Trader

US stocks traded lower this week, and the dollar rallied against many of the majors. The dollar index broke out of its consolidation and we could be coming to the end of what has been mostly directionless trade in the current markets for much of the past 18 months.

Stocks

Stocks ended the week lower, having closed down for the second consecutive week. The S&P 500 has been trading very indecisively around its 100-day moving average.

The Nasdaq 100 broke short-term support and remains stronger than the S&P 500, and is still clearly in a long-term uptrend.

The Dax chart displays an almost total lack of trend as the market continues to trade mostly sideways, as it has for the past three months. Volatility has dropped to a level that suggests a breakout will follow soon. The odds currently favour that breakout being to the upside, based on the long-term trend and RSI, which remains in the bull range.

Commodities

The recovery in the energy markets has continued. The long-term trend is now up in four of the five markets in the sector, leaving only RBOB Gasoline in a downtrend. RBOB is, however, within the range of a breakout and change of trend.

Feeder Cattle continues to trend lower, this week falling to its lowest level since November 2012. Substantial selling volume currently supports further declines in this market, possibly down to the next support level which is around the 100 level.

Lean Hogs, also in the currently bearish cattle sector, had bounced higher this week but then reversed lower on Friday, keeping the downtrend intact.

Of potential interest in terms of a set-up is Soybean Oil. Recent trade has seen a short-term trend line hold, and price break out of a short-term wedge. A break of the August high will complete a change of long-term trend to up and further rally from there would break the neckline of a large inverted head and shoulders pattern which, if completed, would point to a measured target around the 45.00 area, a significant move.

Weakness in the metals markets could also play out in Copper, a market that has traded within a symmetrical triangle for almost all of 2016. Volatility is supportive of a breakout from this triangle soon, with the odds slightly favouring a downside breakout.

Currencies

The dollar index cleared resistance at the July high and has, potentially significantly, closed above that prior resistance level. If the trend is good, that level should now act as support and form a platform for further rally. The one negative for the index in the short-term is that volatility has increased to a fairly extreme level, which always makes a market prone to a swift reversal back to fair value, which is currently around 96.50.

Dollar strength has pushed the Euro lower down towards a major trend-defining support level which could be tested this week.

Interest rate futures

Interest rate futures moved lower again this week. The 30-Year T-Bond tested and broke its 200-day moving average as expected. With the RSI also below the 40-level, therefore in the bear range, a change of trend to down is looking increasingly likely and could be completed over the coming weeks.

Good trading

Phil Seaton

LS Trader

Weekly Update 9 October 2016 – LS Trader

The past week has seen the Pound fall to its lowest level in 31 years and has seen a sharp decline in Gold. Stocks continue to hover near all-time highs. Many markets and asset classes remain in a pre-breakout phase and the large moves seen in Gold, and the British Pound could be a sign of things to come in several other markets over the coming weeks.

Stocks
The stock markets remain in a very neutral position. Compression is evident in price, volume and volatility. In terms of the US markets we have inside bars on the current quarterly, monthly and weekly charts, and until a slight range expansion on Friday, we also had an inside bar on the daily chart as well. All these things add up to a coiling market that is preparing itself for a large move. With price near to all-time highs in the case of the US markets and the trend being firmly up, the normal technical picture would lean towards upside resolution, but that view is not supported by declining volumes. We shall have to see what unfolds, either way, this tight low volatility environment is coming to an end soon.

Commodities
Gold fell out of bed in a big way this week. Following the trend line break seen the prior week (trend line up from the December 2015 lows), price moved lower this week and took out horizontal support that had held for three months. This led to further liquidation and price fell below its 200-day moving average for the first time since February.
The commitment of traders data has recently had large speculators at record all-time long positions, with commercial hedgers at record all-time short positions. This is not normally a position that is conducive to further advances and usually results in capitulation from the longs. If that happens, we could see considerable liquidation and lower prices, with a change of long-term trend to down on the horizon.

As a side note on COT data, it is a very lagging indicator and most of the time is of limited use. The only time when it can be useful is when record levels are reached, which is what we have now in Gold.

Currencies
We’ve been writing for weeks now about the lack of trend in the currency markets and have been stating that, along with a few other asset classes, currencies were in a tight, low volatility environment and that they were in the pre-breakout phase. That remains the case, but there are some signs of life, particularly in Cable (GBP/USD) and the dollar index.

Cable broke to new 31-year lows basis the cash markets this week, falling sharply in overnight trading early Friday morning to 12034 (December futures). This decline has the market on target to reach the 11396 level that we wrote about a couple of weeks ago. Following that swift decline, the Pound recovered and closed the week at 12445, but remains in a very deep downtrend.

The dollar index also broke out of the initial congestion zone to reach its highest level since July and may now test the key July resistance high.

Interest rate futures
Interest rate futures moved lower this week. The 30-Year T-Bond has now closed lower for six straight days and is at a key structural support level. The long bond also looks set to test its 200-day moving average this week. We have also seen the 40-level broken on the RSI. All things considered, next week’s trading could be crucial for this sector. A change of long-term trend to down is on the horizon, but as yet unconfirmed.

Good trading
Phil Seaton
LS Trader

Weekly Update 2 October 2016 – LS Trader

There are several markets that are in the pre-breakout phase and that are potentially well placed for breakouts. Although numerous markets are currently consolidating, there are multiple markets that are well within the range of breakouts, including the energy and currency markets. If, as is usually the case, the breakouts and resultant trends are proportional to the prior consolidation, there are some big moves on the horizon in multiple asset classes.

Stocks
The Nasdaq 100, currently the strongest of the four stock indexes that we trade at LS Trader, tested its recent high but was unable to break through. The long-term trend remains up but volatility continues to undergo compression and volume remains below average, suggesting there is little fuel to push this market higher. That could change if we get a breakout to new highs, but for now, the trend is in a precarious position.

The S&P 500 is also close to its all-time highs but is also undergoing volatility compression. Currently, the market its finding support at the 50-day moving average.

The Dax once again found support from the down sloping trend line from the 2015 high, which arrested the declines this week, leading to a bullish day with decent volume on Friday. The trend remains up for the Dax, and the RSI is still in the bull range. A test of 10,800 may follow.

The Nikkei 225 continues to consolidate and is still undergoing volatility compression at daily and weekly chart level. Based on my indicators, volatility on the weekly chart is the lowest it has been since November 2012. Not long after that, the market rallied some 7000 points over the next six months. That does not mean that the market will rally this time, we could see a significant move to the upside or the downside; it just means that in terms of volatility compression we are in the pre-breakout phase which should yield a large move once the breakout completes.

Commodities
We wrote last week that the energy sector was also undergoing significant volatility compression and that they were in the pre-breakout phase. The energy markets rallied this week and may test key resistance in the next few days. A breakout from this current consolidation and volatility compression should yield a decent move in the direction of the breakout.

Orange Juice reached its highest level since 2012 before pulling back. If support holds, we may see further rally to all-time highs, at 226.95.

Currencies
It’s the same story again in the currency markets, where the sector as a whole continues to consolidate. The dollar index remains locked in a range, trading sideways along its 50 and 200-day moving averages, both of which are also flat. If there is a textbook case of lack of trend, the dollar index is it.

Although this low volatility compression phase is present in most currency markets, there are a few that are edging towards critical levels, which if taken out could awaken some volatility and volume metrics, leading to a sustainable price trend. For now, we remain in consolidation.

Interest rate futures
The long-term trend remains up for the interest rate futures sector, but these markets continue to consolidate in the region of the 50-day moving averages. The RSI tested the 60 level on the 10 Year T-note and has so far been unable to break through. If it can, we may see a test of price resistance and a possible upside breakout, followed by a test of the July highs.

Good trading

Phil Seaton